Good Wednesday evening. I trade the 5 Year Treasury Note through Interactive Brokers, and have a reasonable open trade profit in my current short position. While I have traded for several years, I have shifted my focus to the longer term, and will be confronted with the need to roll the SEP13 contract to the DEC13 contract.
If I buy back the short, in order to cover the position at the time of my rollover, doesn't that turn my open trade profit into a closed trade profit? If I then go short again, I now have a new open position at the new price level.
How do I / can I keep the position open through some sort of simultaneous offsetting trade?
You cannot leave your position open, because the September contracts expires. Therefore you have to close it out or to roll it forward.
The easiest way to roll your short position in ZF is to sell a Sep13/Dec13 calendar spread.
Selling the calendar spread means that you are simultaneously buying the ZF Sep13 contract and selling the ZF Dec13 contract. The existing short position in the September contract and the short calendar spread will automatically be converted into a short position in the December contact.
Rolling via the spread should be cheaper than buying back the old contract and selling the new one separately. Also there is no execution risk involved, as the market cannot move against you when you sell the calendar spread.
For example if I look at current bid/ask spreads for the June and September contracts of ZF, they are
If you consider that you pay half the bid/ask spread you would lose 4 ticks now, if you roll to the September contract via two separate transactions, but only 2.5 ticks if you roll via the spread. The ZF Dec13 contract is still illquid so I cannot use as an example here.
If you look for a fiscal optimization through maintaining unrealized profits, then I cannot help you, as I do not know which tax rules apply to you.
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Good Sunday afternoon. Thanks for the guidance on this. So far, the trade in the Sep ZF is still on. Will plan of rolling to the Dec using the method you described, probably about 10 days before expiration.
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